ECONOMICS - tqa.tas.gov.au€¦ · Economics Page 3 CANDIDATE ... Consider the following circular flow diagram of income and expenditure for the Australian ... Households, Firms,

Questions: 28Pages: 19Attachments: Answer Sheet for Section A

Answer Sheet for Section C – Question 23 (e)Answer Sheet for Section C – Question 24 (e)(i)Answer Sheet for Section D – Question 26 (e)

©Copyright for part(s) of this examination may be held by individuals and/or organisations other

than the Tasmanian Qualifications Authority.

Tasmanian Certificate of Education

ECONOMICSSenior Secondary 5C

Subject Code: EC851

External Assessment

2004

Time: Three Hours

On the basis of your performance in this examination, the examiners will provideresults on each of the following criteria taken from the syllabus statement:

Criterion 1 Define economic terms, ideas and principles.Criterion 2 Demonstrate knowledge and understanding of economic terms, ideas

and principles.Criterion 3 Apply economic ideas and principles to the identification of

economic problems.Criterion 4 Apply economic ideas and principles to the solution of economic

problems.Criterion 5 Comprehend and use correctly diagrams, graphs and tables and use

mathematical ideas and techniques.

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CANDIDATE INSTRUCTIONS

Candidates MUST ensure that they have addressed ALL of the externally assessed criteria on thisexamination paper.

This paper consists of five sections:

SECTION A Multiple ChoiceSECTION B Core Topic I — Economic SystemsSECTION C Core Topic II — Resource Allocation in AustraliaSECTION D Core Topic III — Aggregate Economic Activity in AustraliaSECTION E Core Topic IV — The International Economy

Each section is of equal value.

Section A contains TWENTY multiple choice questions. You must answer ALL questions.

Candidates must also answer FOUR questions from the remaining sections (B, C, D, E) – ONEquestion from each section.

In Section A, each question will assess one criterion which is indicated in each case.

In Sections B, C, D and E each criterion will be assessed in each question in the following order:

Part (a): Criterion 1Part (b): Criterion 2Part (c): Criterion 3Part (d): Criterion 4Part (e): Criterion 5

The use of a calculator is recommended.

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SECTION A — COMPULSORY

Answer ALL questions in this section.

Answer this section on the separate answer sheet provided.

Clearly indicate your answer to each question by circling the appropriate letter on the answer sheet.

Select the most appropriate answer for each question.

1. An economic problem arises:

(a) when resources are absolutely scarce.(b) when the resources available to an economy are only available at great cost.(c) when the resources available to a nation or individual are scarce relative to the uses for

them.(d) when resources available to an economy or individual are plentiful and there is only a

single use for them. (Core Topic I, Criterion 1)

2. ‘Equilibrium’ in the Australian housing market happens:

(a) when the supply of houses exceeds the demand for houses.(b) when the supply price of a house is below the demand price.(c) when the demand for houses is equal to the supply of houses. (d) when the supply of houses is less than the demand for houses.

(Core Topic II, Criterion 1)

3. Fiscal policy is:

(a) the adjustment of the exchange rate.(b) the adjustment of Australian wage levels.(c) the adjustment of government expenditures or levels of taxation.(d) the adjustment of interest rates in order to influence aggregate demand.

(Core Topic III, Criterion 1)

4. The phrase, ‘the terms of trade’ means:

(a) the real exchange rate.(b) the exchange rate between two countries.(c) the import price index divided by the export price index.(d) the consumer price index in the domestic economy divided by the consumer price index in

the foreign economy. (Core Topic IV, Criterion 1)

5. Cost benefit analysis is a method for measuring:

(a) the opportunity cost of not undertaking a project.(b) the net public benefit flowing from a decision to undertake a project.(c) the net private benefit flowing from a decision to undertake a project.(d) the net social (public plus private) benefit flowing from a decision to undertake a project.

(Core Topic I, Criterion 2)

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6. An increase in the population of Tasmania will have one of the following effects on the price offood in Tasmanian supermarkets. Which one? (Assume in each of the statements below thatthe conditions of supply do not change.):

(a) the price of food is unaffected.(b) the demand for food shifts to the right and the price of food increases.(c) the quantity demanded falls although the demand curve does not change its position and

the price of food falls.(d) the quantity demanded increases although the demand curve does not change position and

the price of food rises. (Core Topic II, Criterion 2)

7. The Federal Government’s total expenditures increase by a large amount and aggregate demandincreases as a consequence. What will be the impact on Australia’s gross domestic product(GDP)?

(a) GDP is simply not affected.(b) GDP increases by some multiple of the increased expenditure and aggregate demand.(c) GDP increases by less than the increased government expenditure and aggregate demand.(d) GDP increases by exactly the same amount as the increase in government expenditure and

aggregate demand. (Core Topic III, Criterion 2)

8. A trade deficit will:

(a) reduce unemployment.(b) reduce the current account deficit.(c) increase Australia’s foreign indebtedness.(d) increase the value of the Australian dollar against foreign currencies.

(Core Topic IV, Criterion 2)

9. Comparative advantage implies:

(a) there is no basis for the international exchange of goods and services.(b) a nation is able to produce commodities more efficiently than any other nation.(c) the ability of one country to produce a good or service at a lower opportunity cost than is

possible in another country.(d) a specific characteristic that makes a nation competitive in international markets, for

example through lower costs, or exhaustive product innovation.(Core Topic I, Criterion 3)

10. Which one of the following statements is true in relation to the labour market if wage rates riseand productivity increases?

(a) quantity supplied falls, there is a decrease in the demand for labour.(b) quantity supplied rises, there is a decrease in the demand for labour.(c) quantity supplied falls, there is an increase in the demand for labour.(d) quantity supplied rises, there is an increase in the demand for labour.


Section A continues over the page.

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Section A (continued)

11. Implementing microeconomic reforms in the Australian marketplace may result in the short term:

(a) cyclical unemployment.(b) seasonal unemployment(c) structural unemployment.(d) long-term unemployment. (Core Topic III, Criterion 3)

12. An appreciation/increase in the Australian dollar against the value of the foreign currenciesshould:

(a) reduce the foreign demand for Australian exports.(b) make Australia a more attractive tourist destination.(c) increase the foreign demand for Australian exports.(d) make imported goods more expensive in the Australian market.


13. Australia is often described as a mixed economy, so when is government intervention in theoperation of a mixed economy justified? Select the best answer from the following:

(a) when markets fail to maximise the returns to employees.(b) when markets fail to maximise returns to business and industry.(c) when markets fail to provide socially optimal levels of production and consumption.(d) when markets fail to maximise the benefits of governments and the public sector generally.

(Core Topic I, Criterion 4)

14. In the fresh fruit and vegetable market, if supply increases when demand remains the same, theequilibrium price:

(a) falls and equilibrium quantity increases.(b) falls and equilibrium quantity decreases.(c) rises and equilibrium quantity increases.(d) rises and equilibrium quantity decreases. (Core Topic II, Criterion 4)

15. The business cycle captures the variation of an economy’s aggregate production and aggregatedemand. Which one of the following statements describes the nature of the economic problemsassociated with a downswing on the business side?

(a) in the downswing phase, both inflation and unemployment fall.(b) in the downswing phase inflation and unemployment both increase.(c) in a downswing (facility production) inflation increases while unemployment falls.(d) in the downswing phase of the business cycle inflation tapers off and unemployment

increases.(Core Topic III, Criterion 4)

Section A continues opposite.

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16. Sustainable development:

(a) allows for continuous growth.(b) continuously improves the Human Development Index.(c) can be achieved with little regard to environmental change.(d) does not jeopardise the environment’s ability to meet the needs of future generations.


17. Consider the following production possibilities for a country producing agricultural exports inmillions of kgs and manufacturing in millions of kgs.

Production Possibilities

What is the opportunity cost of producing one million more kg of manufactures at B?

(a) 0.4 million kilograms agricultural product.(b) 2.5 million kilograms agricultural product.(c) 12 million kilograms agricultural product.(d) 20 million kilograms agricultural product. (Core Topic I, Criterion 5)


ProductType

A B C D E

Manufactures(millions kg)

0 8 16 24 32

AgriculturalProduct(millions kg)

120 100 80 60 40

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18. Consider the following diagram depicting the Australian market for motor vehicles.

At a price of $60 000 per car, what is the disequilibrium situation?

(a) demand exceeds supply by 20 000 vehicles.(b) demand exceeds supply by 80 000 vehicles.(c) supply exceeds demand by 80 000 vehicles.(d) supply exceeds demand by 100 00 vehicles.


Section A continues opposite.

Quantity sold

Price/car$

60 000

40 000

20 000

15 000

20 000 100 000

€

SMV

€

DMV

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19. Consider the following circular flow diagram of income and expenditure for the Australianeconomy which includes 5 sectors: Households, Firms, Finance, Government and Foreign.Given the $ million values down on the diagram, what is the required value of exports to achievemacro economic equilibrium?

What value of exports is required if the economy is to be in equilibrium?

(a) $218 billion.(b) $224 billion.(c) $500 billion.(d) $718 billion.

(Core Topic III, Criterion 5)


Consumer expenditure on goods and services (C)

Government expenditure (G) $214 billion

Investment expenditure (l) $286 billion

Income (Y) = $718 billion

Imports (M) $224 billion

Income taxes (T) $216 billion

Exports (X)

Savings (S) $278 billion

Government sector

Foreign sector

Financial sector

Consumers Businesses

Household sector Firm sector

LeakagesIn

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20. The table below shows the Real GDP in US dollars and the Population for five countries.

Complete the last row of the table. Which country has the highest living standard and whichcountry has the lowest?

(d) US (highest), China (lowest).(a) US (highest), New Zealand (lowest).(c) Switzerland (highest), China (lowest).(b) Switzerland (highest), New Zealand (lowest).


USA Switzerland China Australia NewZealand

Real GDP$Billion (US)

10 500 320 1 716 613 84

PopulationMillion

280 8 1 320 20 3.5

Real GDP percapita $

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SECTION B

Answer ONE question from this section.

Use a separate answer booklet for this section.

Question 21

(a) Fully define the term opportunity cost. (Criterion 1: 8 marks)

(b) Consumer sovereignty is the basis of the unregulated market economy while it plays little if anyrole in fully planned economies. Briefly explain.

(Criterion 2: 8 marks)

(c) Economic studies reveal that an increase in interest rates reduces the rate of investment in capital.What future economic problem does this create?


(d) A Tasmanian abalone processor finds that the marginal cost of its current production level isless than its marginal revenue at that level of production. Should the processor increase orreduce the volume of abalone being produced currently. Briefly explain your answer.


(e) The costs and benefits for the next 40 years associated with Forestry Tasmania’s plan to build aroad through a forest reserve are shown below.

(i) Should Forestry Tasmania build this road?

(ii) Explain your answer

(iii) Outline the limitations of using cost/benefit analysis. (Criterion 5: 8 marks)

$ millionDirect income derived by Forestry Tasmania 5.65Direct costs of road construction and maintenance 7.12Indirect benefits to tourists 3.06Indirect costs to tourists 1.14

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Question 22

(a) Provide a definition of the profit motive. (Criterion 1: 8 marks)

(b) Explain how a cigarette manufacturing company’s pursuit of profits may conflict with socialobjectives.


(c) Briefly explain the main problems in leaving a market economy to function by itself withoutgovernment intervention.


(d) Discuss two ways in which the government can intervene in the economy to improve economicoutcomes. (Criterion 4: 8 marks)

(e) Consider the following production possibility diagram.Production Possibilities in the Australian economy

Two production possibility frontiers (PPF) appear on the diagram. PPF (AB) represent theproduction possibilities prior to the application of new technologies. PPF (CD) are theproduction possibilities after the application of new technologies. Assume the economy isinitially at Point X.

(i) Explain what happens if the economy moves to point Y.

(ii) Explain what happens if the economy moves to point Z.

(iii) What can be said about the benefits of technological change?(Criterion 5: 8 marks)

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Z

Y

Output of agriculturalcommodities

C

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SECTION C



Question 23

(a) Define the phrase a change in the conditions of demand and provide two examples.(Criterion 1: 8 marks)

(b) What will happen to the prices for houses in Tasmania if the population of the state increasesand the supply of housing is fixed? (Criterion 2: 8 marks)

(c) Given that rented accommodation could be considered a substitute good for personal ownershipof a home, what are the implications on rental accommodation of the current housing boom inTasmania? (Criterion 3: 8 marks)

(d) If the demand for Australian motor vehicles increases, what would you expect to happen to thedemand for workers in car plants? (Criterion 4: 8 marks)

(e) Consider the following diagram of the market for skilled labour in Tasmania:

Market for Skilled Labour

The prevailing skilled labour wage rate is W*.

Use the diagram on the answer sheet provided to assist with your explanation.

(i) Is there a shortage or surplus of skilled labour in Tasmania at W*?

(ii) How will the market react to this situation?

(iii) Explain your answer fully with reference to the diagram. (Criterion 5: 8 marks)

Wage rate/hour$ W

W *

No. of workers

€

SL

€

DL

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Question 24

(a) Define the term the productivity of labour. (Criterion 1: 8 marks)

(b) Distinguish a change in the quantity supplied from a change in the conditions of supply in themarket for an individual product. (Criterion 2: 8 marks)

(c) Why does an increase of wage rates threaten to increase unemployment? Is there any situationin which an increase of wage rates does not threaten to increase unemployment? Explain youranswer. (Criterion 3: 8 marks)

(d) Using demand and supply analysis explain what alternatives the government could adopt inpreference to a total ban on cigarette smoking in public places given the objective of reducingsmoking. (Criterion 4: 8 marks)

(e) The table below shows the real value of Australia’s Gross Domestic Product (output) for sevenyears 1997 to 2003. It also shows the number employed in Australia over the same period andproductivity per unit of labour.

(i) On the graph paper provided, prepare a graph showing Australia’s labour productivityover the seven years 1997 to 2003.

(ii) In your blue answer book, comment on and evaluate the trend in labour productivity overthe period 1997-2003. (Criterion 5: 8 marks)

97 98 99 00 01 02 03$billion Real GDP(output)

570 610 650 675 690 725 750

No. employed (million) 8.8 9.0 9.5 9.6 10.1 10.1 10.4Productivity ($’000) 64.8 67.8 68.4 70.3 68.3 71.8 72.1

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SECTION D



Question 25

(a) What is meant by the term aggregate demand?(Criterion 1: 8 marks)

(b) Briefly describe the expenditure method for measuring Australia’s Gross Domestic Product andidentify two expenditure transactions not included in this calculation. (Criterion 2: 8 marks)

(c) Identify an economic problem which arises if the aggregate demand for goods and services inAustralia is less than aggregate supply. Fully explain why this occurs. (Criterion 3: 8 marks)

(d) Identify two fiscal measures which the government may apply to increase employment. Explainhow this happens.


(e) Consider the following graph outlining Australia’s economic growth performance.

(Source: Dixon, T & O’Mahony (2004) The Market Economy. Leading Edge Education, Sydney.)

(i) Identify and describe the economics conditions existing at Point A.

(ii) Identify and describe the economic conditions existing at Point B.(Criterion 5: 8 marks)

B

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% change inreal GDP

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Question 26

(a) Describe the concept of equilibrium in the macro economy. (Criterion 1: 8 marks)

(b) Assume a closed economy. In the current year aggregate demand exceeds aggregate supply.Explain what is likely to happen to levels of production, expenditure and income in the economyin the following years. (Criterion 2: 8 marks)

(c) Identify and describe the workings of a monetary policy which will stimulate aggregate demandand reduce unemployment. (Criterion 3: 8 marks)

(d) Explain the monetary policy options open to the Reserve Bank of Australia in its attempts toreduce inflation. (Criterion 4: 8 marks)

(e) The table below shows the aggregate disposable income ($US billion) for five ‘closedeconomies’ and the marginal propensity to consume in those economies.

On the answer sheet provided:

(i) Complete the last row of this table showing the income-expenditure multiplier for each ofthe five closed economies. Show your workings and the formula you use in yourcalculations.

(ii) Comment upon the effects of greater savings on the multiplier.(Criterion 5: 8 marks)

UK Australia USA Japan ChinaAggregate disposableincome $US (billion)

1 535 614 8 596 7 414 6 686

Marginal propensityto consume

0.75 0.78 0.72 0.68 0.62

ExpenditureMultipliers

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SECTION E



Question 27

(a) Define the term comparative advantage. (Criterion 1: 8 marks)

(b) Describe two goods in which Australia is said to have a comparative advantage and outline whythis is the case.


(c) Briefly explain the effects of exchange rate depreciation on the size of the trade deficit.(Criterion 3: 8 marks)

(d) What is the Australia-US Free Trade Agreement designed to achieve for Australia? Brieflyexplain. (Criterion 4: 8 marks)

(e) Consider the following outcomes of Australia’s trade and capital flows for the year 2003/2004.

From these numbers calculate:

(i) balance on goods and services;(ii) current account balance;(iii) balance on capital and financial account;(iv) balance of payments. (Criterion 5: 8 marks)

Item $ billionGoods credit (exports) 154.8Goods debits (imports) 158.4Services credits (exports) 44.8Services debits (imports) 47.6Net income –23.2Net transfers –4.4Balance on capital account 8.0Balance on financial account 26.0

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Question 28

(a) Define the term economic development. (Criterion 1: 8 marks)

(b) Briefly explain the strengths and weaknesses of Gross Domestic Product as a measure ofeconomic welfare. (Criterion 2: 8 marks)

(c) Describe some of the impacts globalisation has had on the environment. (Criterion 3: 8 marks)

(d) What measures have governments taken to overcome the problems outlined in part (c).(Criterion 4: 8 marks)

(e) Consider the following table:

(i) Compare and evaluate the levels of development and differences between growth anddevelopment of these countries.

(ii) Briefly explain the usefulness of data such as this in determining a country’s level ofdevelopment.


Country GDP percapita annualgrowth rate

(1992-2002)

GDP percapita2002($US)

HumanDevelopment

Index2002

HDIRanking

(177countries)

Lifeexpectancy

at birth(years)(2002)

Malaysia 3.6 3 905 0.793 59 73.0Australia 2.6 20 822 0.946 3 79.1China 8.6 989 0.745 94 70.9


External Assessment

ECONOMICS – SENIOR SECONDARY 5C – 2004

Answer Sheet for Section A

1. (a) (b) (c) (d) 5. (a) (b) (c) (d) 9. (a) (b) (c) (d) 13. (a) (b) (c) (d) 17. (a) (b) (c) (d)




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PLACE LABEL HERE

Pin this answer sheet inside your answer booklet for Section C.


ECONOMICS – SENIOR SECONDARY 5C – 2004

Answer Sheet for Section C – Question 23 (e)

Market for Skilled Labour

The prevailing skilled labour wage rate is W*.

(i) Is there a shortage or surplus of skilled labour in Tasmania at W*? Use thediagram.

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Question 23 (e) continues over the page.

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Wage rate/hour$W

W*

No. of workers

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Question 23 (e) continued

(ii) How will the market react to this situation?

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(iii) Explain your answer fully with reference to the diagram

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PLACE LABEL HERE


ECONOMICS – SENIOR SECONDARY 5C– 2004

Answer Sheet for Section C – Question 24 (e)(i)

(i)

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PLACE LABEL HERE


ECONOMICS – SENIOR SECONDARY 5C– 2004

Answer Sheet for Section D – Question 26 (e)

The table below shows the aggregate disposable income ($US billion) for five ‘closedeconomies’ and the marginal propensity to consume in those economies.

On the answer sheet provided: (Criterion 5: 8 marks)

(i) Complete the last row of this table showing the income-expenditure multiplier foreach of the five closed economies. Show your workings and the formula you usein your calculations.

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Question 26 (e) continues over the page.

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UK Australia USA Japan ChinaAggregate disposableincome $US (billion)

1 535 614 8 596 7 414 6 686

Marginal propensity toconsume

0.75 0.78 0.72 0.68 0.62

ExpenditureMultipliers

Pin this answer sheet inside your answer booklet for Section D.

Question 26 (e) continued

(ii) Comment upon the effects of greater savings on the multiplier.

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ECONOMICS - tqa.tas.gov.au€¦ · Economics Page 3 CANDIDATE ... Consider the following circular flow diagram of income and expenditure for the Australian ... Households, Firms,